Federal Credit Union Handbook National Credit Union Administration

Transcription

Federal Credit Union
Handbook
National Credit Union Administration
Federal Credit Union
Handbook
Prepared by the
Office of Examination and Insurance
NCUA-8055 (Rev 2006) M-4035
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Table of Contents
Foreword
Preface
Part I
Part II
Part III
Part IV
Part V
Part VI
Part VII
Part VIII
Part IX
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5
Federal Credit Unions
7
Organizational Structure and Control
13
Member Services
21
Operational Requirements
27
Management
31
NCUA Funds and Programs
45
Other Laws Affecting Federal Credit Unions
49
Conflict of Interest
61
Other Procedures and Supplemental Information 65
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Foreword
The Federal Credit Union Handbook was created to assist the board
of directors in conducting the credit union’s affairs. The Handbook
covers a wide range of subjects and is intended as a general reference. However, the contents should prove useful to credit union officials and employees in carrying out their duties and responsibilities.
We encourage credit union officials to become familiar with other National Credit Union Administration publications, laws, and regulations.
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Preface
In the early twentieth century, credit needs of the urban working
classes in the United States were largely neglected by established
financial institutions. For the most part, the average worker had nowhere to turn except to the usurious money lenders of the day. This
growing dependency complicated the economic life of the average
consumer and gave rise to the development and formation of a cooperative credit system in the United States, an idea originating in Europe and imported to North America in 1900. In 1908, the first legally
chartered cooperative credit society was established in Manchester,
New Hampshire by a special act of the state’s legislature. The following year, the first complete credit union act, the Massachusetts Credit
Union Act, became law in Massachusetts. By 1933, enactment of
state laws permitting formation of credit unions had been largely accomplished. In 1934, the Federal Credit Union Act was signed into
law, giving further impetus to the movement.
The post World War II era gave rise to an enormous appetite for
consumer goods and an attendant need for consumer credit. Credit
unions met this need to an increasing extent and expanded rapidly.
The credit union system became a recognized social and economic
force in the United States. By the end of 2003, over 82.4 million people were members of credit unions.
Credit unions differ from other financial institutions in that they are
cooperative associations organized to serve members with a common bond of employment, association, or residence. Another characteristic that sets them apart is volunteerism. The founders of the
movement believed volunteers should direct the organization and
operation of credit unions.
Credit unions are organized under a dual-chartering system of federal
and state laws. Federal and state chartered credit unions purposes
include promoting thrift among their members and creating a source
of credit at reasonable interest rates.
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Part I
A federal credit union is a notfor-profit financial institution cooperative organized to provide
its members with a place to save
and a source of loans at reasonable rates. It is a corporation
chartered under the Federal Credit
Union Act to serve groups having
a common bond of occupation
or association, or groups within a
well-defined, local neighborhood,
community, or rural district. More
information about federal credit
union organization and the chartering policies of the National Credit
Union Administration (NCUA) may
be obtained from NCUA’s regional
offices.
power: The power to accept share
deposits, the power to make loans
to members, and the power to borrow funds.
Section 107 of the Federal Credit
Union Act also grants indirect (incidental) powers to a federal credit
union. These powers are necessary
to enable a federal credit union to
carry out the business for which it
was chartered. Since the Federal
Credit Union Act does not specifically define incidental powers, the
board of directors should ensure
any activity not specifically authorized by the Act or by Part 721
of NCUA Rules and Regulations,
is clearly within the credit union’s
indirect powers. If the board of
directors has any questions with
respect to the proposed activity,
it should seek an advisory opinion
from NCUA General Counsel or
consult with the appropriate NCUA
Regional Director.
The Federal Credit
Union Act
The Federal Credit Union Act provides for the chartering and supervising of federal credit unions by
NCUA and the insuring of member
accounts of federal and statechartered credit unions through the
National Credit Union Share Insurance Fund (NCUSIF).
Since 1934, various amendments
to the Federal Credit Union Act
have greatly expanded the ability of
federal credit unions to meet their
members’ financial needs; however, the basic purposes of a federal
credit union, as stated in the Act,
remain unchanged.
Section 107 of the Federal Credit
Union Act specifically defines a
federal credit union’s direct (express) powers. The following
provides three examples of direct
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National Credit Union
Administration (NCUA)
and cooperative credit union
system. NCUA’s four objectives
consist of the following:
The National Credit Union Administration is in the Executive
Branch of the Federal Government. NCUA receives no appropriations and operates solely
from monies received from insured credit unions. NCUA is
headquartered in Alexandria,
Virginia, but it operates on a
decentralized basis through
five regional offices which are
located in Albany, New York;
Alexandria, Virginia; Atlanta,
Georgia; Austin, Texas; and
Tempe, Arizona. More than 80
percent of the Agency’s employees are assigned to the regions.
Each regional office is managed
by a regional director who reports to the Executive Director.
The NCUA Board consists of a
Chairman and two Board Members, each appointed by the
President and confirmed by the
Senate. The NCUA Board and
its headquarters staff provide
policy, direction, and administrative support to the regional offices.
• To ensure the safety and
soundness of the credit
union system.
• To foster cooperation between credit unions and
NCUA (the regulator/ insurer).
• To improve the efficiency
and the effectiveness of
NCUA’s supervision including reducing the regulatory
burden.
• To ensure fair and equal access of financial services for
all Americans.
NCUA Rules and Regulations
Under authority of the Federal
Credit Union Act, NCUA prescribes rules and regulations for
the organization and operation
of federal credit unions. All rules
and regulations are published
in the National Credit Union
Administration Rules and Regulations.
It is NCUA’s policy to ensure its
regulations impose only minimal burdens on credit unions,
consumers, and the public. No
major regulatory changes are
made without first affording
NCUA Objectives
NCUA’s activities are predicated
on four objectives which support
the mission to ensure a stable
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federally insured credit unions
and other interested persons the
opportunity to comment. Credit
union officials are encouraged to
participate in the regulatory process and submit their comments
to NCUA. For further information
about the Agency’s policies for
the promulgation of rules, refer
to NCUA Interpretive Ruling and
Policy Statement (IRPS) No. 0302 dated May 29, 2003.
charter amendment procedures,
please contact the appropriate regional offices or refer to
NCUA’s Chartering and Field
of Membership Manual (NCUA
8007).
Bylaws
NCUA prescribes standard Federal Credit Union Bylaws (NCUA
8001) for adoption upon chartering. Once adopted by the board
of directors, the standard Bylaws become the official Bylaws
of the credit union.
Charter
After an organization certificate,
filed by the subscribers of a
proposed federal credit union, is
approved by NCUA; the document becomes the credit union’s
official charter. Among other
things, the charter includes the
credit union’s official name and
also defines the field of membership.
Standard bylaw amendments
may be adopted by the board of
directors without further NCUA
approval. Applications for approval of non-standard amendments should be forwarded to
the appropriate regional director
for consideration. For further
information, refer to the Federal
Credit Union Standard Bylaws
(NCUA 8001A).
From time to time, a federal
credit union may find it necessary to make changes to its
name or field of membership,
this action requires an application requesting an amendment
to the charter. Applications for
amendments should be made
to the regional director via the
US Mail or the Internet. For additional information pertaining to
NCUA Letters, Regulatory
Alerts, Interpretive Rulings, and
Accounting Bulletins
NCUA publishes numbered
Letters to Credit Unions, Opinion Letters, Regulatory Alerts,
Interpretive Rulings and Policy
Statements, and Accounting
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The examiner prepares and provides the officials with a written
report highlighting the results of
the examination. To derive the
greatest benefit from the examination, the board of directors
and committee members should
review the report carefully. The
board is responsible for taking
necessary corrective actions,
and the supervisory committee
has the duty to ensure the board
corrects identified problems.
Bulletins. These documents
discuss a variety of topics of
interest and should be retained
in the permanent files for ready
reference.
Examinations
The principal method by which
NCUA carries out its supervisory responsibility is through
on-site risk-focused examinations. These examinations are
designed to determine the risk
to the NCUA Share Insurance
Fund. The examiner’s review
focuses on management’s ability to identify, measure, monitor,
and control risk.
The examiner will discuss problems and/or conditions which
impair or may impair the safety
and soundness of the credit
union with the appropriate officials and employees. The examiner will also assist the officials
with developing plans designed
to overcome underlying causes
of current or potential problems.
Through conferences with the
officials, the examiner will ensure they understand what must
be done to improve operations.
Officials can request a conference with the examiner in cases
where the examination did not
identify problems.
Throughout the exam, it is essential for credit union officials
and employees to cooperate
fully. This includes making the
credit union’s books and records
readily available to the examiner.
To facilitate an understanding of
the areas reviewed during the
exam process, best practices,
and regulatory requirements;
exam questionnaires have been
posted on NCUA’s website. With
full cooperation, the examination
will be completed more quickly
and keep disruption of the credit
union’s normal office routine to a
minimum.
It is important to understand
risk-focused examinations are
not audits. The risk-focused examination objectives include de-
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termining whether a credit union
is financially sound and whether
operations are conducted in
compliance with applicable
laws and regulations. The Fed-
eral Credit Union Act places the
responsibility for auditing the
credit union on the supervisory
committee.
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Part II
Organizational Structure and Control
Membership
Regular and special meetings
of the members are held in accordance with Sections 110 and
118 of the Federal Credit Union
Act and Articles IV, V, and X of
the Bylaws.
Eligibility for membership in a
federal credit union is limited to
the persons and organizations
sharing the common bond described in the credit union’s field
of membership, as set forth in
Section 5 of its charter. A person becomes a member upon
approval of an application for
membership, subscription of at
least one share and payment of
the initial installment thereon,
and if required by the board of
directors an entrance fee.
A member may be expelled from
membership by action of the
members or the board of directors as described in Section 118
of the Act and Article XIV of the
Bylaws.
Board of Directors
The board of directors is elected
by the members from the membership. They provide general direction and control of the
credit union, and must meet at
least once a month. The Act and
Bylaws require the board to consist of an odd number of credit
union members, not fewer than
5 nor more than 15. No member
of the board may, as such, be
compensated.
The members exercise democratic control of the credit union
by attending and participating
in regular and special membership meetings, and by electing the board of directors (and
credit committee, if the Bylaws
so provide). Each member is entitled to not more than one vote
irrespective of the number of
shares owned; and no member
may vote by proxy, but a member other than a natural person
may vote through a designated
agent.
The board elects the credit
union’s officers, one of whom
may be compensated, from its
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own number. These officers,
whose titles are determined by
the board, are the chair, one or
more vice chairs, a financial officer, and a secretary. The board
may employ one or more assistant financial officers, none of
whom may serve as chair or vice
chair; and one or more assistant
secretaries, none of whom may
serve as chair, vice chair, or financial officer.
the compensation of any other
employees they deem necessary
to carry out the credit union’s
operations.
The board may also establish
committees from among the
members to assist in the management of the credit union.
Some committee examples
include a budget committee,
personnel policies committee,
education committee, and delinquent loan committee.
The board of directors appoints
the credit union’s supervisory
committee and, if the Bylaws
provide, a credit committee or
loan officers. The board may
also appoint an executive committee, of not less than three
directors, to act on behalf of the
board and to carry out specific
functions. No member of the
supervisory, credit, or executive
committees may be compensated as such.
For a full discussion of the
board’s responsibility for providing sound and effective management of the credit union’s
operations, refer to Part V, Management, of this Handbook.
Sections 111, 112, and 113 of
the Federal Credit Union Act and
Articles VI and VII of the Bylaws
describe the duties and powers
of the directors, board officers,
and employees.
The board may appoint a management official and one or
more assistant management
officials, none of whom may be
members of the board, unless
a standard bylaw amendment
is adopted. These employees
serve under the supervision of
the board or financial officer
and may be compensated. The
directors may employ and fix
Credit Committee
In accordance with the credit
union’s Bylaws, the Federal
Credit Union Act permits either
the members of the credit union
or the board of directors to appoint the credit committee. The
committee must be comprised
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Supervisory Committee
of an odd number of credit union
members, not less than 3 nor
more than 7. The committee is
required to meet at least once a
month.
The Federal Credit Union Act
and the Federal Credit Union
Bylaws stipulate the board of
directors will appoint a supervisory committee consisting of not
less than 3 and no more than 5
credit union members. One of
the members of the committee
may be a director, other than
the financial officer of the board;
however, no credit committee
member or credit union employee may be a member of the
committee.
The credit committee has the
authority to appoint one or more
loan officers, not more than one
may serve on the committee.
The committee may selectively
delegate its powers to a loan
officer and set the limits of the
delegation. Applications or requests not approved by a loan
officer must be acted upon by
the credit committee.
The supervisory committee is
an essential part of the credit
union’s management. Under the
Act and Bylaws, the supervisory
committee’s major responsibilities include:
If the Bylaws do not require a
credit committee, the board of
directors will appoint one or
more loan officers and authorize
them to assume the powers of
a credit committee. A member
may appeal to the board any application or request denied by a
loan officer. Loan officers may
be compensated to the extent
authorized by the board. The
duties and powers of the credit
committee and loan officers are
discussed in Section 114 of the
Act and Article VIII of the Bylaws. Refer to Credit Services, in
Part III, of this Handbook for additional discussion.
1. Make an audit at least
annually.
2. Verify the accounts of the
members at least once
every 2 years. (Maintain
record of account
verifications)
The committee is also responsible for reviewing the performance of the officials and
employees, and makes recommendations to the board of di-
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rectors for improving operations
within the credit union.
ing the supervisory committee,
but only the committee has the
authority to select, prescribe the
duties of, and remove such individuals. Refer to Part 715 of the
NCUA Rules and Regulations for
specific requirements.
In order to carry out its responsibilities, but dependent on
charter type and asset size, the
supervisory committee may
employ certified public accountants, public accountants,
and/or other independent qualified persons to perform auditing,
account verification, and clerical work under its supervision.
The board of directors provides
compensation to persons assist-
The members of the supervisory
committee are urged to study
the Supervisory Committee
Guide for Federal Credit Unions
(NCUA 8023) for assistance
in carrying out their important
function.
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Responsibilities:
1. Maintain general direction and control.
2. Meet at least monthly and maintain
minutes.
3. Establish operating policies and procedures.
4. Elect board officers and fix compensation
of specified officer.
5. If bylaws provide, appoint credit committee
or loan officer(s).
6. Appoint supervisory committee.
7. Appoint membership officer, executive
and other committees.
1. Meet at least monthly and maintain
minutes.
2. Appoint loan officer(s) as needed
and delegate authority.
3. Counsel members in wise use of
credit.
4. Maintain confidential relations with
members.
5. Act on applications for loans and
lines of credit.
Board of Directors
Responsibilities:
Credit Committee
1. Elect board of directors and credit committee.
2. Participate in membership meetings.
3. Promote participation in and use of credit
union services.
4. Repay loans as agreed.
5. Remove any official for cause.
6. Expel members for cause.
Responsibilities:
Members
1. Make or cause to be made audits at
least annually.
2. Submit audit reports to the board of
directors and summaries to members
at annual meetings.
3. Verify with members their account
balances at least once every 2 years.
members.
5. Suspend directors, officers, or credit
committee members for cause.
Responsibilities:
Supervisory Committee
Federal Credit Union Organization Chart
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8. Act on requests denied by loan
officer(s).
9. Make annual report to members.
6. Act on requests for release of
collateral.
7. Act on requests for extensions and
refinancing of loans.
8. Hire, fix duties and compensation of
employees and set personnel policies.
members.
10. Act on membership applications.
11. Determine classes of accounts and fix
maximum individual share limit, when
appropriate.
12. Fix loan policies regarding loan
maximums, interest rate, maturity, and
security.
13. Establish collection policies and procedures
and fix late charges.
14. Designate depository for funds.
15. Authorize investments and borrowing.
16. Declare dividends and interest refunds.
17. Determine surety bond needs at least
annually.
18. Authorize necessary insurance.
19. Provide necessary service facilities.
20. Act on loans to directors, credit and
supervisory committee members in
excess of $20,000.
21. Appoint a security officer and supervise
security program.
22. Establish a records preservation program.
23. Request approval of charter and nonstandard bylaw amendments.
24. Plan and hold annual meeting, report to
members, and maintain minutes.
6. Call special membership meetings
for cause.
7. Maintain committee's records.
8. Request board approval for
compensation of clerical and
auditing assistance.
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Part III
Member Services
Thrift Services
Credit Services
The promotion of thrift is one
of a federal credit union’s basic
purposes, and can lead to improvement of the economic and
social conditions of the members.
Loans to members represent a
federal credit union’s major investment. The board of directors
has the responsibility for setting
written loan policies and is afforded considerable flexibility
by Section 107(5) of the Federal
Credit Union Act and Section
701.21 of NCUA Rules and
Regulations on matters such as
loan maturity, rate of interest,
and security.
In encouraging the members
to save, a credit union may offer various share products,
such as: Regular shares, share
draft, share certificate, money
market, and retirement plan accounts. Other less commonly
used accounts include escrow,
nonmember, and public unit accounts. A federal credit union
must offer its members a regular
share account, either as a separate account or in combination
with any of the other available
accounts.
The provisions of the Act and
the regulations, as well as of
consumer laws and regulations,
should be understood and followed by the board and credit
committee/loan officers in their
respective policymaking and
credit approval roles. (Refer to
Part VII for a discussion of consumer laws and regulations.)
Share accounts and share certificate accounts are the credit
union’s primary source of funds.
A discussion of the different
types of share accounts and
applicable requirements can
be found in Section 701.35 of
NCUA Rules and Regulations.
The granting of loans by the
credit committee and loan officers involves the three “C’s” of
credit. The three “C’s” relate to
Character, Capacity, and Collateral and are described below:
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• A determination of character
involves the development of
information relating to the
applicant’s credit history. This
may be obtained from other
financial institutions and
grantors of credit and from
credit bureaus. The applicant’s record of repayment of
previous loans from the credit
union is also relevant.
A federal credit union may grant
unsecured and secured loans.
Unsecured loans are consumertype loans, usually relatively
small, traditionally offered for
various purposes incidental to
the members’ needs. Secured
loans extend credit with a security interest in personal or
real property of tangible value.
The security may also be an
endorsement by another person
who agrees to repay if the borrower defaults. Co-maker loans,
share-secured loans, and automobile loans are common types
of secured loans. The following
represent other types of secured
loans:
• In determining an applicant’s
capacity to repay, the credit
committee or loan officer
should carefully examine income, debts, debt payments,
and living expenses. After
debt payments and living
expenses are taken into account, the applicant’s income
should be adequate to retire
the loan in accordance with
the agreed upon terms.
Home Equity Loans: A home
equity loan is designed to permit
a borrower to make use of equity in the member’s residence
to increase borrowing capacity.
It is usually secured by either a
first or second mortgage on the
residence. The maturity of a second mortgage loan is limited to
20 years.
• Collateral is pledged security to which the credit union
can turn for collection if the
borrower defaults. The repayment schedule should
provide that the loan balance
is reduced more quickly than
the collateral depreciates.
The collateral should be
readily convertible to cash.
If the security is a co-maker,
that individual should have
the ability to repay in the
case of default.
Residential Real Estate Loans:
A federal credit union may grant
a residential real estate loan for
a one-to-four-family dwelling, including an individual cooperative
unit, that is or will be the principal residence of the borrower.
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Maturity is limited to 40 years or
longer as permitted by NCUA on
a case-by-case basis. The loan
must be secured by a perfected
first lien on the dwelling or a
perfected first security interest in
a residential cooperative unit in
favor of the credit union.
cies required by the regulation
and address the considerations
discussed therein. Because
of the risks and complexities
involved, management should
control the program carefully.
The board of directors should
determine the credit union’s staff
has the necessary credentials
and qualifications, as outlined
in Section 723, to grant such
loans.
A sound lending policy stipulates written appraisals will be
accomplished by independent,
qualified appraisers be obtained
on all loans secured by real
property. Appraisal requirements
are set forth in Part 722 of the
Lines of Credit and Open-End
Loans: A line of credit is a
fixed amount of credit agreed
to by the borrower and the
credit union. The amount may
be drawn upon in increments
or as a total. Repayment terms
are contractually agreed upon
and replenished amounts can
again be withdrawn until the end
of the contractual period. The
line of credit may be secured or
unsecured. Some credit unions
fashion lines of credit in combination with home equity loans.
Access to the line of credit
may be permitted by different
methods, such as checks or
cash disbursements, automatic
teller machines, loan drafts, and
plastic credit cards. Because
advances are pre-approved and
readily accessible, line of credit
borrowing is preferred by many
consumers.
Member Business Loans: Section 723 of NCUA Rules and
Regulations defines a member
business loan as a loan which
will be used for a commercial,
corporate, business, or agricultural purpose. However, the regulation exempts certain business
loans from the member business
loan definition. For example, a
loan when added to other loans
to a borrower or associated
member (one with a common
pecuniary interest in a business
or commercial endeavor) totals
less than $50,000.
A credit union wishing to grant
business loans must adopt and
implement the written loan poli23
quality of life and has contributed to today’s high standard of
living; however, if used unwisely,
it can lead to impulse buying
and overextension of credit.
An open-end loan is similar to a
line of credit plan. The primary
difference is advances are preapproved under the latter, while
each open-end loan advance
must be approved by a loan officer or the credit committee.
Federal credit unions provide
financial counseling services to
assist members in managing
their financial affairs effectively.
The counseling program is usually under the stewardship of
the credit committee or a loan
officer. However, anyone having face-to-face contact with
members, such as the financial
officer or manager, may also be
involved. Some credit unions
engage professional consultants
for this purpose.
Guaranteed and Insured Loans:
Federal credit unions may become qualified lenders under
regulations established by various federal and state agencies.
The agencies will either insure or
guarantee loans made to credit
union members for purposes
provided for in the insuring or
guaranteeing programs. The
following list provides the most
common guarantee or insured
loan types: Real estate loans
insured by the Federal Housing Administration (FHA), those
guaranteed by the Veterans
Administration (VA), student
loans insured under the Federal
Insured Student Loan Program,
and business loan guaranteed
by the Small Business Administration (SBA).
Other Services
Federal credit unions provide
other services for their members
incidental to the basic purposes
of promoting thrift and providing a source of credit. The ability
of a credit union to offer such
services depends on its expertise and its resources. Included
among the services are the following:
Financial Counseling
In today’s complicated and competitive lending market, people
are frequently tempted by easily obtainable credit. If credit is
used wisely, it can enhance the
• Electronic financial services
• Check cashing
• Sale of credit union checks,
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•
•
•
•
•
traveler’s checks, and money orders
Trustee or custodial services
Direct deposit of federal recurring payments
Automated teller machines
Sale and redemption of U.
S. Savings Bonds
Safe deposit box leasing
Refer to NCUA Rules and
Regulations Part 721- Incidental
Powers, for additional services
with respect to pre-approved
activities permitted to carry out
a credit union’s business purpose.
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Part IV
Service Facilities
It is essential for credit unions to
establish an office readily accessible to its members. If space is
not provided by the sponsor, the
board of directors should obtain
conveniently located space at
a cost within the credit union’s
ability to pay. The board should
also provide for the necessary
office furniture and equipment.
The purchase of land and
building(s) is subject to the requirements and limitations set
forth in Section 701.36 of NCUA
Rules and Regulations. However,
qualifying credit unions under
the Regulatory Flexibility Program (RegFlex) are exempt from
regulation 701.36 (a), (b) and (c)
of this requirement. (Refer to
NCUA Rules and Regulations,
Part 742-RegFlex)
Land and Building
Branch Offices
A federal credit union has the
power to acquire land and a
building necessary and incidental to its operations. Before making a major investment of this
nature, the board of directors
must develop a strategic plan
outlining the need for the property and its effect on the credit
union’s earnings and overall financial condition. If real property
is purchased for future expansion; it must be partially utilized
within a reasonable period which
shall not exceed 3 years, unless
authorized by NCUA.
The board of directors may
establish one or more branch
offices in order to serve outlying members more effectively.
Prior to establishing branch operations, the credit union must
ascertain the additional cost is
part of its strategic plan and is
affordable. Other operational
details include: Implementing
strong internal controls, centralizing recordkeeping, and
establishing and maintaining a
communication system between
the branch and main office.
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Office Facilities on
Military Installations
ments produced by the system
are used by management to account to the members, creditors,
and NCUA.
A federal credit union with an
office on a Department of Defense installation may have the
option of using available space
or constructing its own facilities.
Authority for this activity is set
out in Department of Defense
Directive 1000.11, dated June
11, 2000.
Credit unions under $10
Million in assets can use the
Accounting Manual for Federal
Credit Unions for information,
guidelines, and recommended
procedures and practices.
Section 2000 of The Accounting
Manual illustrates the prescribed
accounting principles and
standards which federal credit
unions with under $10 Million in
assets should follow if not using
generally accepted accounting
principles (GAAP).
Credit Union
Service Contracts
A federal credit union may
enter into a contract with one
or more credit unions or other
organizations for the purpose of
jointly owning, sharing, buying,
selling, renting, or leasing fixed
assets or engaging in credit
union services or other activities.
For requirements concerning the
terms of the contract, refer to
Section 701.26 of NCUA Rules
and Regulations.
In accordance with the Credit
Union Membership Access Act
(CUMAA), credit unions with
$10 Million or more in assets
must follow generally accepted
accounting principles (GAAP)
in the call reports they file
with NCUA. Therefore, they
should seek the advice of an
independent accountant for
guidance on full implementation.
Accounting System
The essential purpose of an accounting system is to provide a
federal credit union’s management with complete and accurate financial information it
needs to make sound business
decisions and conduct effective
operations. The financial state-
Adherence to appropriate
accounting principles and
standards assures compliance
with full and fair disclosure
provisions of Section 702.402 of
28
Employee Taxes
Surety Bond and
Insurance Coverage
A federal credit union that pays
salaries to one or more employees is subject to the provisions
of law relating to withholding,
remitting, and paying federal,
state, and local taxes. For example:
A federal credit union is required
to obtain adequate surety bond
coverage to protect it from direct
losses resulting from dishonest
and fraudulent acts of officials
and employees and from losses
due to theft or robbery. Part 713
of NCUA Rules and Regulations
prescribes the required minimum
bond coverage. The regulation
also directs the board of directors to review and determine the
adequacy of the credit union’s
bond protection at least annually.
a. Federal income tax.
b. State and local income
taxes.
c. Social Security tax.
d. Federal unemployment
compensation tax.
e. State unemployment compensation tax.
The Internal Revenue Service’s
Circular E - Employer’s Tax
Guide, obtainable from the local
district director, will be of particular assistance.
The board of directors also has
the responsibility of securing
other insurance to protect the
credit union’s interest including
fire, comprehensive, liability, and
automobile insurance.
Worker’s Compensation
Records Preservation
Program
Many states require employers
to carry worker’s compensation
insurance covering employees
against loss of earnings if injured
on the job. The credit union
should contact the appropriate
state agency for information and
instructions.
A federal credit union is required
to establish a records preservation program for the off-site
storage of duplicate vital records
which can be used for reconstruction purposes in the event
of a catastrophe. The minimum
requirements are prescribed in
Part 749 of NCUA Rules and
Regulations.
29
Security Program
and Regulations to protect the
credit union from robberies,
burglaries, larcenies, and embezzlements and to assist in the
identification of persons who
commit such crimes.
Each federal credit union is
required to institute a written
security program in accordance
with Part 748 of NCUA Rules
30
Part V
Management
tions, The Federal Credit
Union Bylaws, and other
applicable laws and regulations
4) Based on sound and prudent business practices
The board of directors has responsibility for directing and
controlling the affairs of the
credit union and providing effective and efficient management
of the credit union’s operations.
Accordingly, officials should develop a strategic plan.
Policy-making is a continuing
responsibility; therefore, policies
and procedures should be reviewed, evaluated, and adjusted
at least annually. Any policy
changes should be reflected in
the board minutes. The board
should maintain a “Policy Control Record Book” with a copy
of each policy and showing the
date of adoption and/or revision.
Policies and Procedures
To carry out its responsibilities, the board should develop
policies and procedures; and
carefully design them to enable
the credit union to function in a
way to best serve the interests
and needs of the membership.
Comprehensive policies and
procedures provide direction
and instruction for officers, employees, and committees.
Program Management
Once policies and procedures
are established, the board of
directors is responsible for their
implementation. To ensure proper implementation, the board
should determine the following:
Written policies and procedures,
at a minimum, should be:
1) Firm and clear in purpose
2) Consistent with the credit
union’s goals and objectives
3) In compliance with the
Federal Credit Union Act,
NCUA Rules and Regula-
1) The person(s) responsible
for carrying out the policies
and procedures is aware of
their intent and the expected
results.
31
2) Each policy statement includes a periodic reporting
or follow-up system so that
the board can evaluate its effectiveness and amend the
policy and/or procedure to
achieve the intended results.
3) Coordination exists among
the individuals assigned to
implement the applicable
policies and procedures.
d) Who will monitor and report
the progress of the plan?
e) Is the plan affordable?
Organizing
Organizing is the grouping of
activities and individuals to effectively and efficiently accomplish the strategic plan. After
the planning process has been
established, the board of directors should mobilize, organize,
and direct the staff and members who will implement the
plans. The board should keep all
involved individuals informed of
the strategic plan’s status.
To achieve the desired results in
directing the credit union’s program, the board should practice
three basic principles of good
management: Planning, Organizing, and Controlling.
Controlling
Planning
The board should control the
activities and special assignments given, so it may readily
determine if the strategic plan
is being followed in accordance
with established policies and
procedures. Effective and continual program control by the
board helps to:
Planning is the systematic arrangement of all the factors required to achieve the goals and
objectives of the credit union’s
strategic plan. During the planning phase, the board should, at
a minimum, answer the following
questions:
a) What are the plan’s goals
and objectives?
b) When will the plan begin
and end?
c) Who will implement the
plan?
• Prevent unauthorized actions that can hinder the
financial growth and operations of the credit union.
• Keep members informed of
the credit union’s progress.
32
duplicating work already
performed.
(3) Providing physical facilities
that support the maximum
level of accuracy and work
output.
• Predict trends and forecast
results.
• Make information available
for evaluating staff performances.
• Provide data for considering new programs.
• Assess the effectiveness
of programs to attain the
credit union’s objectives.
To assure sound personnel and
operational management, the
board should establish the following:
Administrative Management
• Personnel policies and procedures
• Position descriptions for all
employees
• Performance evaluations
at least annually for all employees (including top management)
• Training programs for officials and employees
• A screening process for
new employees
Administrative management provides the internal controls necessary for operating the credit
union’s business effectively. It
also detects and prevents illegal
and unauthorized acts against
the credit union. Internal controls
are checks and balances built
into policies and procedures.
Many internal controls are developed out of daily experience and
sound business practices.
Establishment and maintenance
of internal controls in a federal
credit union are the responsibility of the board of directors.
However, the supervisory committee should review the credit
union’s internal control structure
at least annually. The committee
should report all weaknesses
discovered to the board and
then follow up to ensure identified weaknesses were corrected.
Internal controls as prescribed
by law, regulation, or sound
business practice include:
(1) Dividing duties so that no
one person has sole control
over any transaction and its
recording.
(2) Establishing the flow of
work so one employee,
acting independently, automatically verifies the
work of another without
33
conducted completely independent of any official or
employee.
• Segregate the maintenance
of opening and closing accounts from those who handle the accounting records.
At least five types of internal
controls should be utilized by
the board of directors to assure maximum levels of service,
growth, and protection for the
members. They are organization,
budgetary, accounting, methods
and procedures, and auditing.
The Bylaws and the Supervisory
Committee Guide for Federal
Credit Unions contain information concerning organizational
structure and internal controls.
Organization
Effective organization provides
for the logical delegation of duties, responsibilities, and authority, and should be adapted
according to the size of the staff.
and the Bylaws establish the
basic organization pattern for
federal credit unions. As a credit
union grows in size, further divisions of duties and responsibilities become necessary.
Budgetary
Planning is an essential part of
the budgetary process. Management should review economic
conditions and all phases of
the credit union’s operations
and should set long range objectives and short-term goals.
Prior to implementing any new
program(s) or project(s), management is encouraged to perform cost/benefit analysis and
include all approved projected
costs in the credit union’s
budget.
A credit union’s organizational
structure and procedures should
provide strong internal controls,
such as:
• Separate the duties of the
loan approval process from
loan disbursements.
• Assign the countersigning
of checks and notes to a
person other than a disbursing officer.
• Ensure supervisory committee internal audits are
The final and most important
steps are measuring the results
against the budget, seeking explanations and understanding
the reasons for variance, and
making any necessary adjustments when warranted.
34
Accounting
Methods and Procedures
A properly designed accounting
system achieves sound internal
controls and provides the board
with reliable financial data. The
actual results of operations
should reflect whether a credit
union is managed effectively and
complies with board established
To assure the business of the
credit union is carried out orderly the board of directors should
establish methods and procedures. When establishing methods and procedural controls, the
board should apply the following
principles:
1) Set fixed responsibilities.
2) Segregate duties so no one
person handles a transaction from beginning to end.
3) Do not permit employees
who receive and disburse
cash to post to the members’ ledgers. Also, do not
permit them to reconcile
the bank statement with
the cash account.
4) Establish and use control
devices on office equipment.
Accounting control requires focus on the daily functions and
operational aspects of the credit
union, such as: 1. The proper
methods for handling members’
transactions and recording them
on the books and records. 2.
The receipt and disbursement of
funds. 3. The preparation of financial statements which reflect
the full and fair disclosure of the
credit union’s financial position
and the results of operation.
Accounting procedures will depend on the credit union’s asset size. Credit unions with less
than $10 Million in assets should
follow the Accounting Manual,
Section 2. Federal Credit Unions
with more than $10 Million in
assets must follow GAAP when
filing their call reports.
Require all employees, including
the financial officer or management official, to take a vacation
at least once each year and for
an extended period of time not
less than one full week.
A small credit union with only
one or two experienced employees may face difficulty in following principles (2) and (3). To
35
count verification procedures.
The board of directors or the
supervisory committee may not
reduce the minimum standards
set forth in the guide. However,
they can expand the scope, the
number of audits, and the supplemental procedures.
satisfy the checks and controls
over daily work, the board must
become involved. However, if
this arrangement is not feasible,
the internal auditing function of
the supervisory committee becomes especially important.
The supervisory committee
should consider expanding
the scope of its internal audit
program to quarterly on-site
reviews. An alert credit union
management team continually
studies its methods and procedures in an effort to make them
more efficient, economical, and
effective in helping to reach its
strategic goals.
The supervisory committee must
submit all audit and account
verification reports to the board.
These reports assist the board in
evaluating whether the officials
and the employees are functioning in the manner prescribed by
the organizational, accounting,
budgetary, and method and procedure controls.
Internal Auditing
By properly carrying out its responsibilities, the supervisory
committee will help deter fraud,
error, careless action, and willful
violation of law, regulations, and
policy. Although all fraud and error cannot be prevented, early
detection can minimize reputation risk among the membership
and the general public. Also, the
financial officer or management
official and the employees will
normally make a greater effort to
keep the records in proper order
if they know the supervisory committee will quickly detect careless action.
Internal auditing is the fifth type
of internal control. As required
by law, the supervisory committee functions as the internal auditing body of the credit union.
Each year the supervisory committee must perform or cause to
perform a comprehensive annual
audit. In addition, the committee
is responsible for the members’
account verification which must
be performed not less frequently
than once every 2 years. The
Supervisory Committee Guide
for Federal Credit Unions
discusses the auditing and ac-
36
Financial Management
short-term loans comprise most
of the credit union’s assets, the
officials might offer only regular
share accounts and short-term
share certificates.
Effective financial management
is the basis for meeting sound
financial objectives. In addition,
effective management also balances the extension of credit
union services with the achievement of safe and sound operations by properly utilizing credit
union resources. The members
receive a fair return in the form
of well-designed services and
reasonable dividends.
The board must establish realistic dividend policies and rates.
When setting dividend rates, the
board should carefully consider
the credit union’s funding needs
and the current market conditions. In the interest of sound
financial management, the board
should avoid paying above market dividend rates just to achieve
rapid share growth. Rapid share
growth results in excess liquidity
which in turn can adversely affect earnings if the excess funds
cannot be loaned out in a safe
and sound manner.
Financial management embraces a number of credit union
programs. The following reflects
significant credit union programs:
Share Program: Share and
share certificate accounts are
the primary source of credit
union funds. Meeting the members’ thrift needs is a major
consideration when establishing share policies. However, the
officials must also weigh the
cost of funds and match shares
with assets of similar maturities. For example, if long-term
loans comprise most of a credit
union’s assets, share policies
should strive to offer share accounts and share certificate
accounts with extended maturity and restricted withdrawal
features. On the other hand, if
At a minimum, the board’s written share policies should establish the dividend periods, the
dates the share deposits begin
earning dividends, applicable
withdrawal penalties, and establish the dividend computation
methods.
Lending Program: A sound
lending program is essential to
the financial future of a credit
union. The officials must strike
a balance between meeting the
members’ needs and meeting
the needs of the credit union’s
37
financial objectives and resources. The lending program should
consider the credit union’s share
structure and funds flow, its
short- and long-range goals and
objectives, and local economic
conditions. At a minimum, lending policies should clearly reflect
maximum limits on loans; limitations on loan maturities and repayment terms; and acceptable
collateral.
• Proper maintenance of collection records.
While loan collections may be
delegated to a committee or
staff member(s), the board has
the responsibility of exercising
close control over the program.
Investment Program: A credit
union may at times have funds
in excess of its needs. The
Federal Credit Union Act and
NCUA Rules and Regulations, Part 703 – Investment
and Deposit Activities, provide
guidance concerning investing
activities. The board of directors
is responsible to implement and
monitor a sound investment program for their credit union. The
scope of the program depends
largely on the credit union’s
size, extent of its surplus funds,
and management’s expertise. A
credit union’s Investment Policies and Procedures should address the following:
Loan Collections: Effective
loan collection contributes to a
credit union’s ability to sustain
loan services and to maintain a
sound financial position; therefore, strong collection policies
and procedures remain a vital
part of the lending program. The
board of directors should establish collection policies designed
to keep loan delinquency to a
minimum. Policies may differ
from one credit union to another;
however, a credit union’s collection policies and procedures
should at a minimum include the
following:
1) Legality: The board of directors is responsible to ensure
all investments comply with
Sections 107(7), (8), and (15)
of the Act and NCUA Rules
and Regulations, Part 703.
• Follow-up actions for all
delinquent loans.
• Accurate delinquent loan
reporting to the board.
• Utilization of outside collection sources when internal
efforts fail to produce results.
2) Safety, Liquidity, and Yield:
Sound investment policies
assume a conservative ap38
proach in balancing safety,
liquidity, and yield. In this
context, liquidity means the
ability to respond quickly to
anticipated and unanticipated shifts in the credit union’s
flow of funds. Very often investments with greater risks
command greater yields.
Safety and yield should be
carefully weighed prior to undertaking any investment that
could result in a loss to the
credit union.
board remains solely responsible for controlling the overall investment program.
5) FAS 115 - Classification of
Securities: This accounting
standard requires a federal
credit union to classify its
securities holdings (debt and
equity securities) in one of
three categories after assessing its intent and ability with
regard to those holdings. The
classification categories are:
(1) Held-to-Maturity (2) Available-for-Sale (3) Trading. The
related fair value of those
securities classified as either
Available-for-Sale or Trading
must be assessed at least at
the end of each dividend period (e.g., monthly, quarterly,
semiannually, or annually).
Sales and transfers out of the
Held-to-Maturity category
should be rare and any such
transaction may raise questions about the appropriateness of the designation as
Held-to-Maturity.
3) Diversification: Credit unions
can employ a diversification
policy to minimize potential
investment losses. Diversification of investments can
minimize potential investment losses. Such a policy is
particularly useful for credit
unions that invest in marketable securities. The board’s
policies should clearly address diversification and specifically note any limitations
it may place on the types of
investments, quantities, and
maturities to be purchased.
If the board employs a brokerage firm or other investment
professional, the board must
satisfy itself as to the reliability
and financial soundness of the
firm and the individual. Also,
the credit union must retain dis-
4) Accountability: While the
board may delegate specific
investment authority to an
executive committee, an
investment committee, or
a management official; the
39
cretionary control over the purchase and sale of investments.
However, the regulation permits
delegation of discretionary control provided the person is an investment adviser registered with
the Securities and Exchange
Commission (SEC), under the
Investment Advisers Act of
1940. At the time of delegation,
the amount delegated can not
exceed, in the aggregate, 100
percent of its net worth. Annually, the board must review the
delegation authority.
investments under the adviser’s
control and their performance.
NCUA Interpretive Ruling and
Policy Statement (IRPS) No. 982, dated April 1998, provides
guidance for managing investment risks including market,
credit, liquidity, operational, and
legal risks. It also provides guidance on oversight of investment
activities and describes, in general terms, the risk management
process.
Additional information about
federal credit union investments
and related accounting procedures may be found in NCUA
Letters to Credit Unions. Current
investment information may also
be obtained by using NCUA’s
Investment Hotline toll free at
(800) 755-5999.
To determine whether to transact business with an investment
adviser the board must analyze
his or her background and information available from state or
federal securities regulators, including any enforcement actions
taken against the adviser or the
associated personnel.
Borrowing: Borrowing is a
means by which a credit union
obtains additional funds on a
temporary basis. If properly
planned, borrowing can stimulate growth, help meet financial
objectives through a period of
tight money, and satisfy seasonal or other temporary needs.
Borrowing should not be a substitute for an effective thrift promotion program or a stop-gap
attempt to replenish funds.
The board may not compensate
an investment adviser who has
discretionary control over the
purchase and sale of investments on a per transaction basis or based on capital gains,
capital appreciation, net income,
performance relative to an index,
or any other incentive basis.
The board must obtain a report
from its investment adviser at
least monthly. The report should
provide details concerning all
40
The board may delegate borrowing authority to the executive committee, financial officer,
or general manager. However,
the board remains ultimately
responsible for all borrowing
by the credit union. The board
should establish borrowing policies to include the following:
lations, Part 742; for a complete
list of exemptions. RegFlex eligibility is earned by credit unions
who meet the following parameters:
1. CAMEL Composite of 1 or 2,
for the past two consecutive exams;
2. and a net worth ratio of 9
percent or greater (or if a
credit union is subject to
a risk-based net worth requirement, net worth must
be 200 basis points over its
risked based net worth level
or nine percent, whichever
is higher)
1) The conditions under which
borrowing may occur
2) The amount that may be
borrowed under each condition
3) The interest which may
be paid on the borrowed
funds.
4) The applicable repayment
terms.
The RegFlex exemption is usually automatic for those credit
unions meeting both criteria.
However, if a credit union meets
only one criterion; management
can apply to their applicable Regional Director for the RegFlex
designation.
The board should coordinate
borrowing and repayment plans
with all other aspects of their
financial management. For legal
limitations on borrowing activity
by a federal credit union, refer
to Section 107(9) of the Act and
Section 701.38 of NCUA Rules
and Regulations.
A credit union can lose their
RegFlex eligibility if, at any time,
the credit union no longer meets
the criteria for the RegFlex designation. NCUA will notify credit
unions if their eligibility has
been rescinded. In addition, the
NCUA Regional Director may
revoke a credit union’s RegFlex
designation for substantive and
Regulatory Flexibility Program
(RegFlex)
RegFlex allows eligible credit
unions to be exempted from all
or part of specific regulations.
Refer to NCUA Rules and Regu-
41
documented safety and soundness issues.
run adjustments of assets and
liabilities to compensate for variations in the flow of funds. In the
long run, a credit union’s success depends on reconciling the
different elements involved in
obtaining and using funds. Since
a credit union must have sufficient liquid assets to meet loan
demand and share withdrawals,
funds management policies and
procedures are vital irrespective
of the credit union’s size.
Prompt Corrective
Action / Net Worth
The NCUA Board prescribes to
a system of prompt corrective
action (PCA) to resolve the problems of insured credit unions.
Complex credit unions are also
subject to risk-based net worth
requirements. NCUA Rules and
Regulations, Part 702, defines
net worth categories for purposes of PCA. The net worth
categories include: Well Capitalized, Adequately Capitalized,
Undercapitalized, Significantly
Undercapitalized, and Critically
Undercapitalized. The credit
union’s net worth should be
sufficient to meet competitive
pressure and adverse economic
conditions as they arise, and
should enhance the safety of the
members’ shares and keep pace
with asset growth.
The basis for applying funds
management strategy is a thorough knowledge of the makeup
of a credit union’s field of membership; the nature of its assets
and liabilities; and the economic
and competitive environment in
which it operates. Funds management techniques should be
applied with a full understanding of the characteristics of
the individual credit union. The
following are considered essential elements of an effective
funds management program: (1)
Regular evaluation of the credit
union’s asset and liability structure (2) Regular assessment of
asset yields and liability costs (3)
Adequate planning for current
and future liquidity needs (4) An
on-going determination that policies are sufficient to efficiently
structure assets and liabilities
Funds Management
Funds management, also known
as Asset/Liability Management,
is the continuing arrangement
and rearrangement of both sides
of a credit union’s balance sheet
to obtain reasonable profits and
provide for adequate liquidity
and safety. It focuses on short42
in order to meet changing economic conditions.
Financial Performance
Report (FPR)
A necessary ingredient for sound
financial management is a workable management information
system. Reports containing basic financial information should
be prepared and reviewed on
a regular basis. Report formats
and content will vary from one
credit union to another, depending on the characteristics of
each and its funds management
methods.
The FPR year-to-date data is
derived from the credit union’s
quarterly Call Report (NCUA
5300). In addition to the year-todate information, the FPR also
presents the previous 5 years’ financial performance in the form
of ratios, statistics, and dollar
amounts. FPRs also portray the
credit union in relation to a credit
union peer group of similar asset size. This is accomplished
through utilization of peer averages and percentile rankings.
The reports should, however,
contain at least the following information:
NCUA’s Financial Performance
Report (FPR) provides a longterm picture of the credit union’s
financial trends and operating
results. The board of directors should use the FPR data
to identify key trends, analyze
past performance, and set future
goals. A more detailed discussion of the FPR can be found
in the User’s Guide for NCUA’s
Financial Performance Report
(NCUA 8008).
1) Budgetary projections of income, expenses, and profitability.
2) Asset yields and liability
costs.
3) Liquidity needs and sources
of funds available to meet
those needs, including the
remaining maturities of all
assets and liability accounts.
4) Economic and competitive conditions in the credit
union’s market area.
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44
Part VI
NCUA Funds and Programs
National Credit Union Share
Insurance Fund
cluding additional coverage of
up to $250,000 for certain retirement accounts. NCUA Publication 8046, Your Insured Funds,
explains the various types of
member accounts and the insurance coverage afforded on each
account, and answers questions
most frequently asked about the
Fund.
The National Credit Union Share
Insurance Fund (NCUSIF) was
established by Congress in October 1970 for the purpose of insuring share deposits in member
credit unions. Unlike the Federal
Deposit Insurance Corporation (FDIC), the NCUSIF was
launched without the benefit of
appropriated or taxpayer monies. The Fund, an arm of NCUA,
is managed under the direction of the three-person NCUA
Board, and is audited annually
by an independent accounting
firm.
Credit unions which are insured
by the NCUSIF are required to
display the official NCUA insurance sign at the teller windows.
All federal credit unions must
be insured by the NCUSIF. No
federally insured credit union
may terminate its insurance
without the written approval of
the NCUA Board and an affirmative vote by a majority of the
members. Sections 205 and 206
of the Federal Credit Union Act
and Part 708b of NCUA Rules
and Regulations spell out the
exact steps to be taken.
Share deposits in federally
insured credit unions are insured up to the standard maximum share insurance amount
(SMSIA), which is presently
$100,000, an amount equal to
the insurance protection offered
by the FDIC. Generally, if a credit
union member has more than
one account in the same insured
credit union, those accounts are
added together and insured up
to the SMSIA. However, there
are exceptions to this rule in-
The NCUSIF is funded through
its member credit unions. Federally insured credit unions are
required to maintain in the Fund
a deposit equal to 1% of their
45
Central Liquidity Facility
insured shares. This deposit is
carried as an asset on the credit
union’s financial statements and
may earn a dividend if the Fund
exceeds its normal operating
level ratio of 1.30% during the
insurance year. In addition to
the deposit, an annual insurance
premium equal to 1/12th of 1%
may be assessed. Monies collected from credit unions are
primarily invested in U S. Treasury securities; and the income
earned is used to offset all administrative and insurance costs
of the Fund. Any remaining
income after payment of these
costs is allocated to Fund equity
to maintain the operating level
ratio at or close to the 1.30%
range.
The Central Liquidity Facility
(CLF) was created by Congress
in 1979 because credit unions
needed their own source of
funds to meet their liquidity
needs in the same way that
the Federal Reserve System
“discount window” provided
access to loans for banks. Barriers to last-resort liquidity have
changed favorably over time
(e.g., credit unions who qualify
may now borrow from the Federal Reserve discount window)
but the CLF continues to be an
important major back-up source
of liquidity for both Federal and
state-chartered credit unions.
The CLF is a “mixed ownership government corporation”
within the National Credit Union
Administration. It is an instrumentality of the Federal Government owned by its member
credit unions and managed
by the NCUA Board. The purpose of the CLF is to improve
the general financial stability
of credit unions by providing
loans to meet unexpected share
outflows, seasonal needs, and
needs arising from emergencies
such as strikes, plant closings,
and local or national economic
difficulties, when funds may not
be available from other sources.
also authorizes the NCUSIF to
grant assistance to problem
credit unions in order to avoid
involuntary liquidation. Under
Section 208 of the Act, the
NCUSIF may make loans to,
purchase assets of, or establish
accounts in such insured credit
unions.
For further information about the
NCUSIF, refer to Title II of the
Act, Parts 740, 741, and 745 of
46
The CLF is designed to provide
funds for liquidity purposes only,
not to expand lending.
es to its members. Credit unions
can apply by submitting a completed application to NCUA.
Membership is voluntary and
open to all credit unions that
purchase a prescribed amount
of CLF stock. Additional information about the CLF may be
found in Title III of the Federal
Credit Union Act and Part 725
of NCUA Rules and Regulations. A credit union may also
call the CLF at (703) 518-6620
with questions regarding loans
and membership.
The Community Development
Revolving Loan Program contains a matching component.
Generally, the credit union must
increase its share deposits in an
amount equal to the loan. This
requirement occurs within 1 year
of the loan disbursement and
the credit union must maintain
the share deposit increase for
the duration of the loan. Refer to
NCUA Rules and Regulations,
Part 705, for additional guidance.
Community Development
Revolving Loan Program for
Credit Unions
Ombudsman Program
The duties and responsibilities of the Ombudsman (NCUA
employee appointed by the
Chairman and not in a program
position) are to receive, review,
and investigate external complaints of a regulatory nature
unresolved at the operational
level. Solutions are recommended since the Ombudsman
does not have independent decision-making authority. Correspondence should be addressed
to the Ombudsman, National
Credit Union Administration,
1775 Duke Street, Alexandria,
VA 22314-3428.
The Community Development Revolving Loan Program
for Credit Unions (Part 705 of
NCUA Rules and Regulations)
enables both federal and statechartered credit unions meeting
certain qualifications to apply
for and receive loans of up to
$300,000, in the aggregate, at
a low fixed interest rate. The
amount of the loan is based
on funds availability, the credit
worthiness of the participating
credit union, financial need, and
a demonstrated capability of a
participating credit union to provide financial and related servic-
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Part VII
Other Laws Affecting Federal Credit Unions
This part of the Handbook briefly
discusses the laws and regulations, other than the Federal
Credit Union Act and NCUA
Rules and Regulations, which
contain requirements which may
affect the day-to-day operations
of federal credit unions. The officials of a federal credit union
have the responsibility of being
aware of the provisions of these
laws and regulations and ensuring the credit union complies.
This Act requires all credit
unions to clearly and conspicuously disclose fees, dividend
(or interest, if applicable) rates
and other terms concerning accounts to members or potential
members before they open accounts. The law also requires
periodic statements be provided
to members and include information about fees imposed,
dividends (or interest, where
applicable) earned, and the annual percentage yield earned
on those accounts. Limitations
on the methods used by credit
unions to determine the balance on which dividends are
calculated, and rules dealing
with subsequent disclosure,
electronic communication, and
advertisements for accounts are
also included in the law.
Consumer Laws and
Regulations
Truth in Savings Act
The purpose of the Truth in Savings Act (TISA), 12 U.S.C. 4301
et seq., is to assist consumers in
comparing deposit accounts offered by depository institutions,
principally through the disclosure of fees, the annual percentage yield (APY), the interest rate,
and other account terms. The
act and regulation require depository institutions to provide a
consumer with disclosures upon
request and before an account
is opened.
Truth in Lending Act,
Regulation Z
The purpose of this regulation
is to promote the informed use
of consumer credit by requiring
disclosures about its terms and
conditions. The regulation requires very specific information
49
Electronic Fund Transfer Act,
Regulation E
to be disclosed for both openend and closed-end loan plans.
Credit unions that do not comply
may be subject to civil liability
as provided for by Section 130
of the Truth in Lending Act. This
regulation is applicable only to
extensions of consumer credit,
i.e., credit offered primarily for
personal, family, or household
purposes.
This regulation affords protection to members whose share
accounts may be accessed
through the use of an electronic
terminal, telephone, or computer
or magnetic tape, without the
use of any paper instrument
to initiate the transaction. The
regulation requires disclosure of
fees, terms and conditions applicable to such activity as well as
documentation of such transfers
and procedures for resolving errors within a specific time frame.
Equal Credit Opportunity
Act, Regulation B
Under this regulation, no creditor
may discriminate on a prohibited
basis in any aspect of a credit
transaction. The prohibited
bases are: race, color, religion,
national origin, sex, marital status, age, receipt of income from
any public assistance program,
or good faith exercise of rights
under the Consumer Credit
Protection Act. The regulation
addresses what information may
be requested on loan applications, how it may be considered, and the content of notices
required to be given following
the action taken on loan applications. As with the Truth in
Lending Act, the Equal Credit
Opportunity Act contains a civil
liability provision to protect the
consumer against noncompliance by the credit union.
Preservation of Consumers’
Claims and Defenses Rule
This Federal Trade Commission rule, better known as the
“Holder in Due Course” rule, is
intended to prevent sellers and
creditors from unjustly separating the consumer’s responsibility
to pay for goods and services
from the seller’s obligation to
deliver marketable goods or otherwise perform its obligations.
It applies when the credit union
is both the seller and the lender,
as in the case of repossessed
property sold to a member and
financed by the credit union, as
well as when the credit union
has a formal or informal busi-
50
Home Ownership and Equity
Protection Act (HOEPA)
ness arrangement with the seller
to offer the financing on its merchandise.
This Act places restrictions on
and requires disclosures regarding certain high-cost mortgage
loans. It broadens the scope
of mortgage loans subject to
HOEPA by adjusting the price
triggers used to determine coverage. It also restricts certain
acts and practices in connection
with HOEPA loans over a short
period of time when the transactions are not in the borrower’s
interest. Finally, it strengthens
HOEPA’s prohibition against extending credit without regard to
consumer’s repayment ability.
Fair Credit Reporting Act
Credit unions are subject to the
requirements of this Act when
information obtained from a
consumer reporting agency
contributes to the denial of the
applicant’s loan request. The
name and address of the reporting agency must be disclosed.
When information obtained from
a source other than a consumer
reporting agency is used, the
applicant must be told of the
right to request, in writing, the
nature of the information.
Homeowners Protection
Act of 1998
Real Estate Settlement
Procedures Act (RESPA),
Regulation X
This Homeowners Protection
Act is also known as the “PMI
Cancellation Act.” The Act addresses the difficulties homeowners have experienced in
canceling private mortgage insurance (PMI). It also establishes
provisions for the cancellation
and termination of PMI and requires certain disclosure and
notification requirements, plus
requires the return of unearned
premiums.
To protect consumers, this regulation requires home buyers be
provided documentation relating to financing and settlement
costs of residential real estate
transactions within 3 business
days of submitting a mortgage
loan application and at the time
of settlement.
51
Fair Debt Collection
Practices Act
Right to Financial
Privacy Act
A credit union is subject to this
Act only if it regularly collects
consumer debts on behalf of
another party, with some exceptions. Various collection
practices are prohibited such
as harassment, intimidation,
threats, and humiliation. If a
credit union merely collects its
own debts, compliance with this
Act is not required; however,
we recommend the credit union
avoid those practices prohibited
under the Fair Debt Collection
Practices Act.
The Right to Financial Privacy
Act protects the personal financial privacy of federal credit
union members by restricting
access to a credit union’s financial records concerning its
members.
The Act sets forth the conditions a credit union must meet
before granting access to or
before providing copies of financial records of a member to
a government authority. In most
cases, the credit union must
obtain authorization from the
member or secure from the government authority a subpoena
or summons, a search warrant,
a judicial subpoena, or a formal
written request.
Home Mortgage Disclosure
Act, Regulation C
This Act requires credit unions
to disclose publicly where their
mortgage loans have been
granted. The purpose is to prevent lenders from ruling out or
“redlining” certain residential
areas of a city as ineligible for
mortgage credit. The Act does
not prohibit the creditor from determining the value of the collateral in relationship to the amount
of credit requested.
Under the Act, a credit union
may disclose, to a government
authority, the information it has
relevant to a possible violation of
any statute or regulation. Credit
unions may give only identifying information and the nature
of any suspected illegal activity. The Act provides the credit
union or any official, employee,
or agent is not liable to the
member for making such disclosure or failing to notify the member thereof.
52
Soldiers’ and Sailors’
Civil Relief Act
Fair Housing Act
The Fair Housing Act prohibits
a credit union from denying a
mortgage or home improvement
loan to any member for reasons
of race, color, national origin,
religion, sex, handicap, or familial status (having children under
the age of 18). Requirements
and guidelines are set forth in
Part 701.31 of NCUA Rules and
Regulations.
Since persons entering military
service sometimes do so at
greatly reduced income, they
may be unable to meet the
terms of obligations they made
while in civilian life. The Soldiers’ and Sailors’ Civil Relief
Act provides protection during
the period of reduced income.
The Act does not cancel obligations but merely gives to those
in military service who are financially unable to pay, protection
against legal action to repossess
collateral or force payment of an
obligation.
Privacy Act
The Privacy Act protects individual privacy. The Act applies
to the Federal Government’s
collection, maintenance, and
use of information about individuals.
The Act applies only to loans
made prior to entering the service. It does not prevent a credit
union from accepting loan payments or from continuing loan
collection efforts short of legal
steps.
The Privacy Act may affect
those federal credit unions
whose sponsors are federal
agencies or instrumentalities,
but only in a limited way. While a
federal agency (with the exception of agencies like the CIA)
may routinely release the name,
position, title, base pay, GS
level, and duty station of an employee, the federal credit union
may need to obtain its member’s
consent if it wants to secure
The Act should be consulted for
its application to the operation
of a credit union. If any legal action against a borrower in military service is felt justified and
necessary, the advice of local
counsel should be obtained.
53
additional information from the
agency, for example, in connection with determining a loan
applicant’s creditworthiness.
written policies and procedures
designed to detect and prevent
money laundering activities.
Failure to comply with the requirements of BSA and its
implementing regulations can
result in both civil and criminal
penalties.
Other Laws and Regulations
Bank Secrecy Act (BSA)
The Bank Secrecy Act includes several related Acts
enacted by Congress, such
as: the Anti-Drug Abuse Act,
the Money Laundering and
Control Act, the Currency and
Foreign Transactions Act, and
the USA Patriot Act. The primary objective of the BSA and
its implementing regulation (31
CFR 103) is to provide a paper
trail of financial transactions to
help detect and prevent money
laundering connected with drug
trafficking, terrorism, and other
criminal activities.
In its Letter to Credit Unions
03-CU-16, dated October 2003,
NCUA provides guidelines to
assist credit unions in complying
with the BSA regulation. The letter also summarizes the recordkeeping and reporting
requirements of the Treasury
regulation.
Office of Foreign Asset
Control Act (OFAC)
The OFAC Act requires credit
unions to maintain a current list
of prohibited individuals and
countries. Also, the Act requires
credit unions to compare their
members, new members, and
account transactions against
the list, blocking all accounts
and transactions with prohibited
entities ongoing. To comply with
OFAC, credit unions must:
Credit unions must establish and
maintain a written compliance
program for fulfilling the requirements of the BSA that includes
at least: (1) a system of internal
controls; (2) designation of an
individual to coordinate/monitor
BSA compliance; (3) independent testing; and (4) training of
appropriate personnel. In addition, an effective BSA compliance program should include
• Understand the various
laws, regulations and penalties for non-compliance
with OFAC.
54
the identity of any customer who
opens an account. The written
customer identification program
(CIP) must be a part of the credit
union’s anti-money laundering program, approved by the
board and should be tailored to
the credit union’s size, location,
and type of business. Customers must be provided notice that
the credit union is verifying their
identity and why. The CIP must,
at a minimum, provide for:
• Establish effective OFAC
• Maintain a current list of
prohibited countries, organizations, and individuals.
• Ensure the designated
person compares and
maintains the current list of
prohibited countries, organizations, and individuals with
members’ transactions.
USA Patriot Act
The USA Patriot Act permits
credit unions, upon providing notice to the United States
Department of the Treasury, to
share information with one another and other financial institutions in order to identify and
report to the federal government
activities which may involve
money laundering or terrorist activity. Credit unions must ensure
they maintain adequate policies
and procedures to protect the
security and confidentiality of
such information. Also, credit
unions may not use the shared
information for any purpose other than what was authorized.
• Obtainment of certain basic
identifying data;
• Verification of the identity of
each customer to the extent
reasonable and practicable;
• Maintenance of records
of the information used to
verify the identity; and
• Determination of whether
the customer appears on
any lists of suspected terrorists provided by the Federal
government.
The CIP must also address:
• How to handle discrepancies in identifying information received;
Section 326 of the USA Patriot
Act sets forth minimum standards for financial institutions,
including credit unions, for the
identification and verification of
• Terms under which a customer can conduct transactions while the identity is
being verified; and
55
• What to do if the credit
union cannot form a reasonable belief that the true
identity of the customer is
known.
passport number, etc.) must be
maintained for five years after
the record was made.
Gramm-Leach-Bliley Act
This Act requires credit unions
to provide privacy notices to
their members either at the initial
time of establishing a customer
relationship or on an annual
basis for continuing customers. The privacy notice must be
clear, conspicuous, and provide
an accurate statement of the
credit union’s privacy practices.
Furthermore, the notice should
explicitly state the information
a credit union collects about its
customers, with whom it shares
the information, and how it protects or safeguards the information. The Act also provides
consumers an opportunity to
“opt-out” of sharing their nonpublic personal information with
nonaffiliated third parties. (Subject to certain limited exceptions) Refer to NCUA Rules and
Regulations, Part 716 for more
information.
At a minimum the credit union
must obtain the following information prior to opening or adding a signatory to an account:
• Name;
• Date of birth (for individuals);
• Residential or business
street address, APO or FPO
or address of next of kin,
(individual) or principal place
of business, local office or
other physical location (corporation, partnership, etc.);
and
• Taxpayer identification number (U.S. person) or passport number and country of
issuance, alien identification
card number, or other government issued document
bearing a photo or similar
safeguard (non-U.S. person).
The credit union must retain records of the identifying information (name, date of birth, etc.)
for five years after the account
is closed. A description of the
information used to verify the
identity (driver’s license number,
Flood Disaster Protection
Act (FDPA)
The Flood Disaster Protection
Act of 1973 (FDPA) and Part 760
prohibits federally insured credit
56
unions from making, increasing,
extending, or renewing any loan
secured by improved real estate
or a manufactured home if:
intent of the Act, to proscribe
corrupt activity in credit unions,
the guidelines prohibit any employee, officer, director, committee member, agent, or attorney
from:
a) The property securing
the loan is located in an
area having special flood,
mudslide or flood-erosion
areas, as identified by the
Federal Emergency Management Agency (FEMA)
b) The community is participating in the National
Flood Insurance Program
(NFIP)
c) Insurance is not purchased
for the property securing
the loan.
a) Soliciting for themselves
or a third party (other than
the credit union) anything
of value from anyone in
return for any business,
service, or confidential
information of the credit
union.
b) Accepting anything of value (other than bona fide
salaries and fees) from
anyone in connection with
the business of the credit
union either before or
after a transaction is discussed or consummated.
The principal objectives of the
FDPA are to ensure that flood
insurance is available at reasonable cost, to reduce or avoid future flood losses, and provide a
preventive alternative to massive
doses of federal disaster relief
funds normally made available
to flood stricken areas.
The guidelines encourage all
federally insured credit unions to
adopt written codes of conduct
or policies explaining the prohibitions in the law. These codes
or policies can desirably be included with those dealing with
other areas of conduct such as
conflicts of interest, discussed in
Part VIII. Credit unions are urged
to review NCUA Interpretative
Ruling and Policy Statement No.
87-1, dated October 15, 1987,
for a full discussion of the prohibitions and guidelines.
Bank Bribery
Amendments Act
As required by the Bank Bribery
Amendments Act, NCUA has
established guidelines to assist
the officials of federally insured
credit unions in complying with
that law. Consistent with the
57
Government Securities
Act of 1986
Federal Election
Campaign Act
The Government Securities Act
and its implementing regulations
pertain to the following activities
and duties of brokers and dealers in government securities: financial responsibility, protection
of investor securities and funds,
recordkeeping, reporting, and
audit. The regulations also apply
to the custody of government
securities held by depository
institutions. The Act does not
significantly affect credit unions.
However, credit unions who: (1)
engage in reverse repurchase
transactions in which they retain
custody of securities subject to
the repurchase transaction, or
(2) offer members self-directed
IRA plans in which the credit
union will hold any securities
purchased by the member,
should consult the applicable
provisions of the implementing
regulations.
The Federal Election Campaign
Act prohibits federally chartered
corporations (including federal
credit unions) from contributing
to political campaigns. However,
the Federal Election Commission Rules and Regulations permit a trade association to solicit
from a credit union’s members if:
a) The credit union has separately and specifically approved the solicitation; and
b) The credit union has not
approved a solicitation by
any other trade association
during the calendar year.
If these conditions are met, a
federal credit union may disseminate to its members political information prepared by
the trade association. Federal
credit unions may not make
share withdrawals for members
for payments to a third party as
political contributions. Doing so
would constitute a donation of
time and resources by the credit
union and is prohibited.
Abandoned Property Laws
Many states have laws requiring
the transfer of inactive deposit
accounts to the respective state.
The credit union should consult
the appropriate state agency
regarding requirements and procedures.
Management Official Interlocks
Under the Depository Institution Management Interlocks
Act, a management official of
58
and return policies on checking, share draft, and other
transaction accounts. It also
establishes the date on which
dividend credit must be given
on a deposit item. Credit unions
offering transaction accounts to
members must fix and disclose
their funds availability policies.
The regulation provides specific
timetables within which funds
deposited in the credit union
must be made available. All
checks and share drafts must
also adhere to a closely defined endorsement method. The
placement and content of the
endorsement are defined specifically in the regulation.
a depository institution or depository holding company is
prohibited from also serving as a
management official of another
depository institution or depository holding company if the two
organizations are not affiliated
and are very large or located in
the same local area. Part 711 of
discusses the prohibitions as
they apply to federally insured
credit unions.
Expedited Funds Availability
Act, Regulation CC
Regulation CC regulates funds
availability policies, endorsement standards, and collection
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60
Part VIII
Federal credit union officials and
employees have an obligation to
the credit union which extends
beyond assuring that their actions do not violate any statute
or regulation. Credit union officials and employees have a fiduciary responsibility to the credit
union members to act in good
faith in the performance of their
duties.
way act on any matter affecting
that person’s monetary interest
or that of an entity in which she
or he is interested.
prescribe the following prohibitions with respect to conflicts of
interest.
Section 701.21(c)(8)–
Organization and Operations of
In accepting a position as an
official or employee of a federal
credit union, an individual should
recognize the interests of the
credit union and its members
have priority over any personal
interest that individual may have.
The position should not be used
to gain personal profit or advantage. Acceptance of a position involves the assumption of
fiduciary responsibilities, some
of which are set forth in the Federal Credit Union Act, NCUA
Rules and Regulations, Federal
Credit Union Bylaws, and state
laws.
A loan may not be made or
line of credit extended if, either
directly or indirectly, any commission, fee, or other compensation is to be received by an
official, employee, or any immediate family member of such
individual, in connection with
underwriting, insuring, servicing,
or collecting the loan or line of
credit.
Section 701.21(d)(5)–
Organization and Operations
of Federal Credit Unions
Article XVI, Section 4 of the Bylaws provides that no official,
employee, or agent may in any
An official, immediate family
member, or other person having
a common ownership, invest61
ment, or other pecuniary interest
in a business enterprise with
an official or immediate family
member may not obtain a loan
or line of credit with preferential
rates, terms, or conditions, or
act as guarantor or endorser
thereon.
Section 703.120 – Investment
and Deposit Activities
A federal credit union’s officials,
senior management employees,
or their immediate family members may not receive anything
of value in connection with the
credit union’s investment transactions.
Section 701.36(e)–
Organization and Operations
of Federal Credit Unions
Section 712.8(a)– Credit
Union Service Organizations
(CUSOs)
A federal credit union may not
buy or lease premises (with the
exception of an informal lease
maturing in less than a year)
from any of the following without the prior written approval of
NCUA:
When a federal credit union has
invested in or made loans to a
credit union service organization, the credit union’s officials,
senior management employees,
or their immediate family members may not receive any salary,
commission, investment income,
or other compensation from the
organization either directly or
indirectly, or from any person
being served through the organization. The official or senior
management employee may assist in operating the organization
if compensation is not involved;
the organization may, however,
reimburse the credit union for
services provided by the individual.
a) An official or senior management employee or immediate family member of
such person.
b) A corporation in which any
of the above-named persons is an officer or director or has a stock interest
of 10 percent or more.
c) A partnership in which any
of the above-named persons is a general partner
or a limited partner with an
interest of 10 percent or
more.
62
Section 721.7 – Incidental
Powers
• Any assistant chief executive officer (e.g., Assistant
President, Vice President,
or Assistant Treasurer/Manager)
• Chief financial officer
(comptroller)
• Any associated member or
immediate family member of
anyone listed above
No official, employee, or their
immediate family member may
receive any direct or indirect
compensation or benefit in connection with the credit union’s
engagement in any activity authorized under the Incidental
Powers regulation. The prohibitions in Sections 712.8(a),
701.36(e), 703.120, and 721.7
apply to any employee not otherwise covered in the regulations
unless the board of directors determines that no conflict of interest is involved in the respective
cases. Where prohibitions are
not specifically stated regarding transactions with business
associates or family members,
officials should exercise care
to ensure such transactions are
conducted at arm’s length and
in the best interest of the credit
union.
Other
A number of federal criminal
statutes apply to federally insured credit unions. Federal
credit union officials and employees have the responsibility
to report suspected criminal
activities to the appropriate law
enforcement agencies on NCUA
Form 2362 (Suspicious Activities
Report). Refer to Section 748.1
for additional guidance.
gives the board of directors
responsibility for the general direction and control of the credit
union. The board thus has the
task of establishing policies
and procedures for the conduct
of the credit union’s affairs, including the establishment and
monitoring of investment and
lending policies and appropriate
dividend rates.
Section 723.2(a) – Member
Business Loans
A federal credit union may not
grant member business loans to
the following:
• Chief executive officer (typically President or Treasurer/
Manager)
63
responsibility for determining
that management practices are
protecting the members’ assets;
that the board’s policies and
procedures are being administered properly; and that safeguards exist against fraud and
conflict of interest.
The board of directors should
select competent management to carry out policies and
procedures and monitor its
performance. The board should
strive to retain the best qualified
personnel at rates most favorable to the credit union. While
the salary and benefits offered
to secure competent management will vary in each case, the
directors should avoid contracts
which might threaten the safety
and soundness of the institution.
Bonuses tied to increases in asset growth or income could have
such an effect. They create an
incentive for management to act
in its own interests rather than
those of the credit union.
NCUA encourages boards of
directors of federal credit unions
to establish codes of conduct to
guide officials and employees in
avoiding conflicts of interest. All
should shun actions from which
they would derive personal gain
from the business of the credit
union, other than normal salaries, benefits, and permissible
non-preferential loans.
The supervisory committee
shares the board of directors’
64
Part IX
Other Procedures and Supplemental Information
Mergers
Conversions
Mergers of credit unions are
usually effected for the purpose
of continuing or improving service to members.
A federal credit union may convert to a state-chartered credit
union under the provisions of
Section 125 of the Federal
Credit Union Act. If the conversion involves termination of federal insurance or a change from
federal insurance to non-federal
insurance, the requirements
outlined in Part 708b of NCUA
Rules and Regulations must be
met.
A federally insured credit
union may merge with one or
more credit unions provided
they comply with the requirements set forth in Part 708b of
and secure the prior approval
of NCUA. If one of the credit
unions is state-chartered, the
merger must also be authorized
by the state supervisory authority or permitted by state law.
The regulation prescribes the
procedures to be followed if
termination of federal insurance
or conversion of federal insurance to nonfederal insurance is
involved.
The Act also provides for conversion of a state-chartered
credit union to a federal credit
union and recites the relevant
requirements. As pointed out in
the Act, the conditions set forth
in state law and by the state
supervisor must be met in either
type of conversion.
Liquidation-Voluntary and
Involuntary
NCUA publication Credit Union
Merger Manual (NCUA 8056),
provides required information
and detailed instructions.
Should it become necessary
for a federal credit union to
liquidate, the liquidation is conducted in accordance with either
65
the requirements of Part 709
(involuntary liquidation) or Part
710 (voluntary liquidation) of the
supervised by NCUA and the
members’ shares are paid directly from the National Credit
Union Share Insurance Fund up
to the insured limit. Except in
unusual cases, payout from the
Fund is begun promptly following commencement of involuntary liquidation.
The major responsibility of the
board is to conduct the liquidation in such a manner which
protects the interests of the
members, the insurance fund,
and the creditors of the credit
union. If the board anticipates
selling the credit union’s loans
but the bids of prospective
purchasers will not provide sufficient funds to pay off shareholders at par, no sale may be
consummated without written
approval from NCUA. If the
credit union becomes insolvent
during liquidation, the NCUA
Board may either provide assistance under Section 208 of
and restore solvency or place
the credit union into involuntary liquidation and pay out the
members, depending on the
circumstances. The same alternatives apply when an operating
credit union becomes insolvent.
Credit Union Trade
Associations
Local, state, and national trade
associations promote the interests of the credit union industry.
They offer a variety of services
to their members, pursue the
enactment and promulgation of,
and changes in legislation and
regulations, and represent credit
union interests before NCUA,
state legislatures, and the United
States Congress.
The decision to join a trade association and approve expenses
incidental to membership and
participation rests with a federal
credit union’s board of directors.
Corporate Credit Unions
Whereas a voluntary liquidation
is conducted by a federal credit
union’s board of directors and
shares are paid to members
from the credit union’s resources, an involuntary liquidation is
authorizes federal credit unions
to invest in shares, deposits, and
certificates of corporate credit
unions, federally or state-chartered. A corporate federal credit
66
kinds of services they may offer
are specified in Section 712.5 of
Examples are credit card services, automated teller machine
services, and debt collection
services.
union is defined in Part 704 of
as one that operates primarily
to serve other credit unions and
limits natural person members to
the minimum required by state
or federal law to charter and operate the credit union.
A federal credit union may, by
itself or with other credit unions
form, invest in, or make loans to
one or more CUSOs. Investment
is limited to a total of 1 percent
of the credit union’s paid-in and
unimpaired capital and surplus
in the shares, stock, or obligation of the organization(s). Loans
may not exceed 1 percent of
the credit union’s paid-in and
unimpaired capital and surplus
(independent of the 1 percent
investment limit).
Corporate credit unions offer
daily-balance share accounts
which can earn dividends comparable to market rates offered
by other financial institutions.
Corporate credit unions also offer a variety of other investment
accounts. In addition, many
corporate credit unions offer accounts for clearing share drafts
and credit card activity.
Credit Union Service
Organizations
A CUSO must be structured as
either a corporation or a limited
partnership. A credit union must
obtain written legal advice as
to whether the CUSO is set up
in a manner that will limit the
credit union’s potential exposure to no more than the loss
of funds invested in or loaned
to the CUSO. The credit union
must, in addition, secure written
agreements that the organization
will follow generally accepted
accounting principles; render
Credit union service organizations (CUSOs) are organizations
that provide operational and
financial services primarily to
credit unions and the membership of affiliated credit unions.
The CUSOs in which federal
credit unions may invest or to
which they may make loans are
limited by the Federal Credit
Union Act to providing services
associated with the routine operations of credit unions. The
67
financial statements and obtain
a certified public accounting
audit annually; and provide
NCUA with complete access to
the CUSO’s records as deemed
necessary by the NCUA Board
in carrying out its responsibilities
under the Federal Credit Union
Act.
the credit union or ascertain
the manner in which the credit
union’s business is being conducted. Before making minutes
and records available, however,
the credit union must delete
any confidential material that
identifies the transactions of or
personal information about other
members.
Part 712 of NCUA Rules and
Regulations should be reviewed
in detail before a federal credit
union invests in or lends to a
CUSO.
Administration Publications
The NCUA publications referred
to in this Handbook and other
NCUA publications may be
purchased from NCUA’s Administrative Office at 1775 Duke
Street, Alexandria, VA 223143428. The cost of a publication
and a copy of a price list may be
obtained by writing that office or
calling (703) 518-6340. Many of
NCUA’s publications are on their
Internet Web Site at http://www.
ncua.gov.
Member’s Right to Inspect
Credit Union Record
A member has the right to inspect a federal credit union’s
books and records, including
the board of directors’ minutes.
The inspection must be made
in good faith and for a proper
purpose. It cannot be to satisfy
mere curiosity or for vexatious
purposes.
Single copies of new publications and changes are forwarded
to all federally insured credit
unions.
A proper purpose exists where
a member is trying to determine the financial condition of
68
Central Office
1775 Duke Street
Alexandria, VA 22314-3428
703-518-6300
www.ncua.gov
Regional Offices
REGION I (ALBANY)
Regional Director
9 Washington Square
Washington Avenue Extension
Albany, NY 12205
(518) 862-7400
REGION IV (AUSTlN)
Regional Director
4807 Spicewood Springs Rd.
Suite 5200
Austin, Texas 78759-8490
(512) 342-5600
Connecticut
Maine
Massachusetts
Michigan
Arkansas
Illinois
Iowa
Kansas
Louisiana
Minnesota
Missouri
New Hampshire
New York
Rhode Island
Vermont
REGION II (CAPITAL)
Regional Director
1775 Duke Street
Suite 4206
Alexandria, VA 22314-3437
(703) 519-4600
Delaware
District of
Columbia
Maryland
REGION V (TEMPE)
Regional Director
1230 West Washington Street
Suite 301
Tempe, AZ 85072
(602) 302-6000
New Jersey
Pennsylvania
Virginia
West Virginia
Alaska
Arizona
California
Colorado
Guam
Hawaii
Idaho
REGION III (ATLANTA)
Regional Director
7000 Central Parkway
Suite 1600
Atlanta, GA 30328
(678) 443-3000
Alabama
Florida
Georgia
Kentucky
Indiana
Mississippi
lands
Nebraska
North Dakota
Oklahoma
South Dakota
Texas
Wisconsin
North Carolina
Ohio
Puerto Rico
South Carolina
Tennessee
U. S. Virgin Is-
69
Nevada
New Mexico
Oregon
Utah
Washington
Wyoming
Montana
This page
intentionally
left blank
70
Index
61
Consumer Laws and Regulations
49
Controlling Credit Union Activities
32
Conversions
65
Corporate Credit Unions
66
Credit Committee
14
Credit Services
21
Credit Union Service Contracts
28
Credit Union Service
Organizations
62, 67
Credit Union Trade Associations
66
Credit Worthiness
22
Currency and Foreign
Transactions Act
54
A
Abandoned Property Laws
Accounting Control
Accounting Manual for Federal
Credit Union, discussion of
Accounting System
Administrative Management
Application for Membership
Audits, Supervisory Committee
59
9
35
28
28, 35
33
13
15
B
Bank Bribery Amendments Act
57
Bank Secrecy Act (BSA)
54
Board of Directors - Powers
31
Responsibilities
Board of Directors Election Directors, Officers, and Credit Committee
13
Board of Directors Meetings
13
Board of Directors
13
Borrowing by Credit Unions
40
Branch Offices
27
Brokerage Firm
39
Budgetary Program
34
Business Loans
23, 63
Bylaw Amendments
9
Bylaws, Discussion of
9
D
Dividend Policy
Dividends
37
67
E
Election of Directors, Officers, and
Credit Committee Members
Electronic Fund Transfer Act Regulation E
Employee Taxes
Examinations
Expedited Funds Availability Act
Expelled From Membership
13
50
29
10
59
13
C
F
Central Liquidity Facility
Charter, Federal Credit Union
Committees, Appointment of
Community Development
Revolving Loan Program
(CDRL) for Credit Unions
Compensation of Directors,
Officers, Committee members,
and Employees
46
9
13
Fair Credit Reporting Act
Fair Debt Collection Practices Act
Fair Housing Act
FCU Act
FCU, Definition
FCU, Discussion Of
FCU Bylaws
Federal Election Campaign Act
47
13
71
51
52
53
7
7
7
9
58
Financial Accounting
Standard - 115
Financial Counseling
Financial Management
Financial Performance
Report (FPR)
Flood Disaster Protection Act
Funds Management
L
39
24
37
Land and Building
Lending Program
Letters to Credit Unions
Line of Credit
Liquidation-Voluntary
and Involuntary
Loan Collections
Loan Officers
Loans to Members
43
56
42
G
Government Securities Act of 1986
Gramm-Leach-Bliley Act
Guaranteed and Insured Loans
58
56
24
Management Official Interlocks
Management Officials
Management
Meetings
Member Business Loans
Member Services
Member’s Right to Inspect
Credit Union Record
Membership
Mergers
Methods and Procedures
Military Installations
22
52
51
51
I
Incidental Powers
Insurance Coverage
Insured Funds
Insured Loans
Internal Auditing
Internal Controls
Investement Diversification
Investment Accountability
investment Adviser
Investment Policies
Investment Program
Involuntary Liquidation
NCUA Interpretive Ruling and Policy
Statement (IRPS) No. 98-2
65
38
15
21
M
H
Home Equity Loans
Home Mortgage Disclosure Act Regulation C
Home Ownership and Equity
Protection Act (HOEPA)
Homeowners Protection
Act of 1998
27
37
40
23
63
29
45
24
36
32
39
39
40
38
38
65
58
14
33
13
23
21
68
13
65
35
28
N
Administration (NCUA)
Share Insurance Fund
NCUA Funds and Program
NCUA Letters, Regulatory Alerts,
Interpretive Rulings, and
NCUA Objectives
Net Worth
40
72
7
45
46
9
8
8
42
13
32
24
Regulation B, Equal Credit
Opportunity Act
50
Regulation C, Home Mortgage
Disclosure Act
52
Regulation CC, Expedited Funds
Availability Act
59
Regulation E, Electronic Fund
Transfer Act
50
Regulation X, Real Estate Settlement Procedures Act (RESPA)
51
Regulation Z, Truth-in-Lending Act
49
Regulatory Alerts
9
Regulatory Flexibility Program
(RegFlex)
41
Residential Real Estate Loans
22
Right to Financial Privacy
52
49
S
O
Office Facilities on Military
Installations
Office of Foreign Asset
Control Act (OFAC)
Officers, Election and
Compensation of
Ombudsman Program
Open-End Loans
Organization
Organizational Structure
and Control
Organizing
Other Credit Union Services
Other Laws Affecting Federal
Credit Unions
Other Procedures and
Supplemental Information
Other statutes
28
54
13
47
23
27
34
65
54
Secured Loans
Security Program
Service Facilities
Share Policies
Share Program
Soldiers’ and Sailors’ Civil
Relief Act
P
Patriot Act
Personnel Policies and Procedures
Planning
Policies and Procedures
Preservation of Consumers’
Claims and Defenses Rule
Privacy Act
Program Management
Prompt Corrective Action /
Net Worth
Publications - NCUA
55
33
34
31
53
T
Thrift Services
Truth in Savings Act
50
53
31
21
49
W
42
68
Worker’s Compensation
R
Records Preservation Program
Regional Offices
22
30
27
37
37
29
69
73
29
74
75
76

Federal Credit Union Handbook National Credit Union Administration

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